Home > Publications . Search All . Browse All . Country . Browse PSC Pubs . PSC Report Series

PSC In The News

RSS Feed icon

U-M's Wolfers on study showing "outright hostility" toward women in economics

Savolainen links antisocial behavior in childhood to disadvantage and poverty in adulthood

Norton et al. put dollar value on relief from chronic pain for Americans age 50+

More News

Highlights

Viewing the eclipse from ISR-Thompson

Paula Fomby to succeed Jennifer Barber as Associate Director of PSC

PSC community celebrates Violet Elder's retirement from PSC

Neal Krause wins GSA's Robert Kleemeier Award

More Highlights

Internal Control and External Manipulation: A Model of Corporate Income Tax Evasion

Publication Abstract

Chen, Kong-pin, and C. Y. Cyrus Chu. 2005. "Internal Control and External Manipulation: A Model of Corporate Income Tax Evasion." RAND Journal of Economics, 36(1): 151-164.

We offer a formal model of corporate income tax evasion. While individual tax evasion is essentially a portfolio-selection problem, corporate income tax evasion is much more complicated. When the owner of a firm decides to evade taxes, not only does she risk being detected by the tax authorities, more importantly, the optimal compensation scheme offered to the employees will also be altered. Specifically, due to the illegal nature of tax evasion, the contract offered to the manager is necessarily incomplete. This creates a distortion in the manager's effort and reduces the efficiency of the contract. Tax evasion thus increases the profit retained by the firm not only at the risk of being detected, but also at the cost of efficiency loss in internal control.

Browse | Search : All Pubs | Next